| NEW YORK
NEW YORK Oct 24 Barclays Plc breached
a derivative agreement with a Black Diamond Capital Management
unit and must return an estimated $297 million in collateral to
the hedge fund, a divided New York state appeals court ruled on
The Connecticut-based fund's BDC Finance LLC filed a lawsuit
against the bank in 2008, claiming Barclays had defaulted on a
$40 million collateral call made at the height of the financial
Barclays disagreed with that amount, asserting that it owed
only $5 million, which it remitted to Black Diamond two days
after the call was made. Black Diamond then declared Barclays in
Last year, Justice Eileen Bransten in state Supreme Court in
Manhattan dismissed Black Diamond's breach of contract claim.
However, the Appellate Division of the Supreme Court, a midlevel
appeals court, reversed that ruling in a 3-2 decision on
The court found Barclays breached the contract both by not
making the $5 million payment on time and by failing to follow
the contract's procedures for disputing a collateral call, which
required the bank to pay the full $40 million amount before
"The evidence in the record undeniably shows that Barclays
failed to pay the undisputed amount by the deadline, and
establishes as a matter of law that Barclays did not comply with
the (contract's) dispute resolution process," the three-judge
With Barclays in default, Black Diamond had the right to
terminate the agreement and demand a return of its entire
collateral, which the fund has estimated at $297 million, the
Two judges, however, dissented from the court's opinion,
arguing that there are questions of fact over whether Barclays
disputed the $40 million call in a timely fashion.
Barclays did not immediately respond to a request seeking
comment outside of regular U.S. business hours. The bank can
seek to appeal the decision to the Court of Appeals, New York's
Craig Newman, a lawyer for Black Diamond, declined to
The deal at issue was signed in 2005. The total return swap
transferred the benefits and risks of an investment in a
Barclays-held portfolio of corporate debt instruments to Black
Diamond in exchange for financing fees paid to the bank.
The contract allowed each side to make collateral demands on
the other based on changes to the value of the underlying loans.
The case is BDC Finance v. Barclays Bank, New York State
Supreme Court, Appellate Division, First Department, No. 9906.